Despite China Trade Issues, SunTrust Stays Positive on 3 Semiconductor Stocks

Microchip Technology

Shares of this huge Internet of Things benefactor and have been very strong recently. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.

The acquisition of Microsemi in June of 2018 is starting to prove to be a solid addition for the company. Most on Wall Street have felt it is an outstanding addition, but as expected, it has taken some time to integrate fully.

SunTrust stays very positive on the company and noted this:

Microchip Technology beat first quarter expectations as impressive execution drove margin & EPS upside. While second quarter guidance was below consensus owing to trade-related concerns, we see upside revisions as more likely going forward. Microsemi acquisition related benefits are already ahead of plan and we now expect the company to increase accretion synergies and margin targets when demand improves in earnest.

Microchip pays investors a 1.73% dividend. SunTrust has a price target of $104, which is in line with the consensus price objective of $104.81 The stock closed at $84.66 on Tuesday.

NXP Semiconductors

This is still considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) became the fourth largest semiconductor company in the industry after it merged with Freescale in late 2015. It is also important to note that the combined company is the number one supplier in auto semiconductors with a 14% share, as well as the number one supplier in global microcontrollers and a dominant supplier in mobile payments.

NXP continues getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile phone charging, increased cellular data consumption and LED lighting. Trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition.

The SunTrust analysts pointed this out in the recent report:

NXP beat first quarter expectations owing to a mix of communications infrastructure and handset sales upside, margin strength, and below-the-line benefits. More surprising, the company guided the second quarter not only above-consensus, but also above-normal seasonality. Buy NXP for revenue growth, margin expansion, and capital allocation that should deliver earnings per share growth.

The $123 SunTrust price target for the stock compares with the $114.89 consensus estimate. The shares were last seen trading at $98.17 apiece.

These three top stocks are in a sector that has been on fire until recently. Given the fact that share prices are now more volatile due to the trade issues, it may make sense to buy smaller positions now and wait and see how things play out. The SunTrust team is right when they say that looking past current issues to the future could be a smart play now.